A diversified portfolio has forever been ‘the staple’ purchasing advice for everyone, whether you’re retail or professional. Boostx is a new cryptocurrency launchpad that offers a vast array of cryptocurrency presales, from DeFi to meme coin.
However, Warren Buffet, undeniably one of the world’s greatest entrepreneurs, has always had a different opinion.
‘Diversification is protection against ignorance. It makes little sense if you know what you are doing.’ – Warren Buffet.
Now, not many individuals in the world can be compared to this billionaire philanthropist, his level of knowledge of financial markets unparalleled.
This article will look at the efficacy of this quote in the world of cryptocurrencies, determining if it can be employed in the cryptocurrency market, as Buffet employs it in the stock market.
Terra Luna as Case Study
Anyone with an eye cast toward the current predicament of the crypto markets will know the horror that Terra Luna unleashed over the last 2 weeks.
The LUNA token had been the standout token of the last 6 months in cryptocurrencies. The only project showing signs of bull market strength, making fresh all-time highs as recently as April 2022. Many had all their eggs and their chicken in the LUNA basket, confident their money was safe.
The Terra Luna token reached a fresh high on the 5th of April, capping at just under $120. By the 12th of May, 99.99% of the token’s value had been eradicated. One of the seemingly strongest coins in the market wiped out its supporters’ portfolio in one horrid month.
Why did it happen?
Terra Luna was a DeFi blockchain project with a network of stable coins. Its stable coin, UST, de-pegged from the value of 1 dollar in the turbulence of the crypto sell-off. This in turn led to a lack of faith in the LUNA token which began a spiralling downward decline.
The algorithm of the UST coin as a consequence ultimately took a fatal laceration, shedding crypto blood and the LUNA token continued to decline. The value of one UST is now less than 10 cents. For a stable coin not meant to deviate more than 1% up or down from its value, it’s easy to see why confidence in the parent token LUNA was broken.
What conclusion can be drawn?
All financial markets are volatile and should be traded with caution. The volatility in the cryptocurrency market, however, is far more amplified. Confidence in the Luna token was completely broken, and it capitulated nearly overnight. Despite having a strong community, a design flaw was located in the project, ushering in its downfall.
Ultimately, this brings us to the distinction between stocks and cryptocurrencies. What applies to one market cannot necessarily sit comfortably in the other. The blockchain industry is still developing, learning, and emerging. For this reason, putting all your eggs and chicken in one basket comes with a great yolk of risk.
No matter how much you believe in a project, Terra Luna is proof that relying on as few as one or even two projects in your crypto portfolio can spell destruction. Warren Buffet proclaimed you must have a diversified portfolio in the cryptocurrency market.
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Link below:
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